The close of last week saw significant turbulence across global financial markets, with equities experiencing a sharp downturn following an escalation of hostilities between Israel and Iran. Friday's trading session was particularly volatile, as news of Israeli airstrikes targeting Iran's nuclear facilities and key personnel sent shockwaves through investor sentiment. The development not only raised fears of a broader regional conflict. 

The impact was visible in major U.S. indices. The Dow Jones Industrial Average bore the brunt of the selling pressure, shedding 1.8%, or 769.81 points, by day's end. The broader S&P 500 also registered a notable decline of approximately 1.1%, or 68.29 points, while the technology-heavy Nasdaq Composite followed suit with a 1.3% loss, or 255.67 points.

These sharp declines highlight just how sensitive markets remain to geopolitical risks, especially when they intersect with vital global sectors like energy. In this environment, value stocks could emerge as an attractive investment choice. Often priced below their intrinsic value, these stocks provide a margin of safety that is particularly appealing during times of market uncertainty.

When evaluating value stocks, one of the most effective valuation metrics is the Price to Cash Flow (P/CF) ratio. Companies like StoneCo Ltd. (STNE Quick QuoteSTNE - Free Report) , Centene Corporation (CNC Quick QuoteCNC - Free Report) , CVS Health Corporation (CVS Quick QuoteCVS - Free Report) and Pfizer Inc. (PFE Quick QuotePFE - Free Report) boast a low P/CF ratio. The P/CF ratio evaluates the market price of a stock relative to the amount of cash flow that the company is generating on a per-share basis — the lower the number, the better.

Price to Cash Flow Reflects Financial Health

You must be wondering why we consider the P/CF valuation metric when the most widely used valuation metric is Price/Earnings (or P/E). An important factor that makes P/CF a highly dependable metric is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly diagnosing a company’s financial health.

Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. Then again, cash flow is quite reliable. Net cash flow unveils how much money a company generates and how effectively management is deploying the same.

Positive cash flow indicates an increase in the company’s liquid assets. This gives the company the means to settle debt, meet its expenses, reinvest in the business, endure downturns and finally undertake shareholder-friendly moves. Negative cash flow implies a decline in the company’s liquidity, which, in turn, lowers its flexibility to support these endeavors.

What’s the Best Value Investing Strategy?

An investment decision based solely on the P/CF metric may not yield the desired results. To identify stocks that are trading at a discount, you should expand your search criteria and also consider the price-to-book ratio, price-to-earnings ratio and price-to-sales ratio. Adding a favorable Zacks Rank and a Value Score of A or B to your search criteria should lead to even better results as these eliminate the chance of falling into a value trap.

Here are the parameters for selecting true-value stocks: 

P/CF less than or equal to X-Industry Median.

Price greater than or equal to 5: The stocks must all be trading at a minimum of $5 or higher.

Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that the stock is easily tradable.

P/E using (F1) less than or equal to X-Industry Median: This parameter shortlists stocks that are trading at a discount or are equal to their peers.

P/B less than or equal to X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.

P/S less than or equal to X-Industry Median: The P/S ratio determines how a stock price compares to the company’s sales — the lower the ratio, the more attractive the stock is.

PEG less than 1: The ratio is used to determine a stock's value by taking the company's earnings growth into account. The PEG ratio gives a more complete picture than the P/E ratio. A value of less than 1 indicates that the stock is undervalued and that investors need to pay less for a stock that has robust earnings growth prospects.

Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.

Value Score of less than or equal to B: Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.

Here are four of the 14 value stocks that qualified the screening:

Stone, a leading provider of financial technology and software solutions, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 6.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Stone’s current financial-year sales and earnings per share (EPS) suggests growth of 10.9% and 4.4%, respectively, from the year-ago period. STNE has a Value Score of B. Shares of STNE have risen 15.2% in the past year.

Centene, a leading healthcare enterprise, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 25.5%, on average. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

The Zacks Consensus Estimate for Centene’s current financial year sales and EPS implies growth of 10.1% and 1.5%, respectively, from the year-ago period. Centene has a Value Score of A. Shares of Centene have declined 19.1% in the past year.

CVS Health, a leading health solutions company, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 18.1%, on average. 

The Zacks Consensus Estimate for CVS Health’s current financial-year sales and EPS suggests growth of 3.5% and 12.6%, respectively, from the year-ago period. CVS Health has a Value Score of A. Shares of CVS have jumped 10.4% in the past year.

Pfizer, which develops, manufactures, markets, distributes and sells biopharmaceutical products, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 43.5%, on average.

The Zacks Consensus Estimate for Pfizer’s current financial-year sales and EPS calls for a decline of 0.6% and 1.6%, respectively, from the year-ago period. Pfizer has a Value Score of A. Shares of PFE have fallen 9.1% in the past year.

You can get the rest of the stock on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and back test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies is available at: https://www.zacks.com/performance.